The Consumer Financial Protection Bureau (CFPB) filed a lawsuit against Navient, the country’s largest student loan servicing company, alleging that it has "systematically and illegally" failed borrowers.
The lawsuit states that Navient committed deceptive acts such as giving the wrong payment information to borrowers, processing their payments incorrectly, not responding to customer complaints, and falsely reporting that injured military veterans who have the right to seek debt forgiveness had defaulted on their loans, which subsequently damaged their credit score.
The CFPB also alleges that Navient steered borrowers that were having difficulty with repayment away from income-driven repayment plans, which can lower their monthly payment and make repayment more manageable. Instead, the servicer encouraged customers to enter forbearance. This temporarily stops payments altogether but borrowers rack up additional unpaid interest.
This was most likely done in an effort to save on customer service costs, as finding an income-driven repayment plan for borrowers and the subsequent paperwork takes much more time than simply switching a borrower to forbearance.
"At every stage of repayment, Navient chose to shortcut and deceive consumers to save on operating costs," said Richard Cordray, the director of the CFPB.
Navient separated from Sallie Mae in 2014, but two additional lawsuits filed by Attorney Generals in Illinois and Washington named both companies. State officials allege that Sallie Mae put borrowers into subprime loans they knew would fail. The lawsuit is seeking debt relief for those borrowers, while the states and CFPB are seeking money for borrowers and civil penalties.
Navient services loans for more than 12 million borrowers, or one in four students loan borrowers, and is one of nine companies with a contract with the U.S. Department of Education to service student loans. This lawsuit has the potential to impact anyone who has a private loan through Sallie Mae prior to 2010 or currently has a loan that is serviced through Navient.
Navient and Sallie Mae call the allegations unfounded and say the timing of the lawsuits—right before a new administration is coming into office—proves that it is politically-based.